The Economics of Sovereign Debt and Default

An integrated approach to the economics of sovereign defaultFiscal crises and sovereign default repeatedly threaten the stability and growth of economies around the world.Mark Aguiar and Manuel Amador provide a unified and tractable theoretical framework that elucidates the key economics behind sovereign debt markets, shedding light on the frictions and inefficiencies that prevent the smooth functioning of these markets, and proposing sensible approaches to sovereign debt management. The Economics of Sovereign Debt and Default looks at the core friction unique to sovereign debt-the lack of strong legal enforcement-and goes on to examine additional frictions such as deadweight costs of default, vulnerability to runs, the incentive to “dilute” existing creditors, and sovereign debt’s distortion of investment and growth.The book uses the tractable framework to isolate how each additional friction affects the equilibrium outcome, and illustrates its counterpart using state-of-the-art compu